What Is Asset Protection?

Asset protection is the adoption of strategies to guard one’s wealth. Asset protection is a component of financial planning intended to protect one’s assets from creditor claims. Individuals and business entities use asset protection techniques to limit creditors’ access to certain valuable assets while operating within the bounds of debtor-creditor law.

Understanding Asset Protection

Asset protection helps insulate assets in a legal manner without engaging in the illegal practices of concealment (hiding of the assets), contempt, fraudulent transfer (as defined in the 1984 Uniform Fraudulent Transfer Act), tax evasion, or bankruptcy fraud.

Experts advise that effective asset protection begins before a claim or liability occurs since it is usually too late to initiate any worthwhile protection after the fact. Some common methods for asset protection include asset protection trusts, accounts-receivable financing, and family limited partnerships (FLP).

If a debtor has few assets, bankruptcy may be considered the more favorable route compared to establishing a plan for asset protection. If significant assets are involved, however, proactive asset protection is typically advised.

Certain assets, such as retirement plans, are exempt from creditors under United States federal bankruptcy and ERISA (the Employee Retirement Income Security Act of 1974) laws. In addition, many states allow exemptions for a specified amount of home equity in a primary residence (homestead) and other personal property such as clothing.

Asset Protection and Real Estate

Jointly-held property under the coverage of tenants by entirety can work as a form of asset protection. Married couples who hold mutual interest in property under tenants by entirety share a claim to a whole piece of property and not subdivisions of it.

The combined ownership of the property means that creditors who have liens and other claims against one spouse cannot attach the property for their debt reclamation efforts. If a creditor has claims against both spouses, the tenants by entirety stipulations would not protect the asset from being pursued by that creditor.

Some attempts at asset protection include putting the property or financial resource in the name of a family member or other trusted associate. For example, an heir might be gifted ownership of real estate or other property while the actual owner continues to reside in the property or make use of it. This could complicate efforts to seize property as actual ownership must be determined. Financial accounts may also be domiciled in offshore banks in order to legally avoid paying taxes against those funds.

What Is an Accredited Asset Management Specialist (AAMS)?

The Accredited Asset Management Specialist (AAMS) is a professional designation awarded by the College for Financial Planning to financial professionals who complete a self-study program, pass an exam, and agree to comply with a code of ethics.

Successful applicants earn the right to use the AAMS designation with their names for two years, which can improve job opportunities, professional reputation, and pay.

Understanding the AAMS Designation

The AAMS program began in 1994 and is taught exclusively online using the CFP’s platform. The College for Financial Planning (owned by Kaplan) is a financial education provider for working adults in the financial services industry.

The AAMS program consists of 10 modules, starting with a review of the asset management process, and then covers a broad range of topics, such as investments, insurance, taxation, retirement, and estate planning issues.

To keep the privileges associated with the designation, AAMS professionals must complete 16 hours of continuing education every two years and pay a fee. The AAMS continuing education program is developed alongside some of the nation’s top investment firms. Applicants explore case studies based on real-life scenarios designed to prepare them for effectiveness in the real world and help them build lasting relationships with clients.

What Does an AAMS Do?

The AAMS certification is designed to equip new advisors with the information they need to help clients plan for and accomplish their personal financial goals. The specialists help people plan college savings, taxes, and retirement savings.

An AAMS focuses on personal finances, over and above checking and savings account management—asset management, investments, and much more.

How to Attain AAMS Certification

The AAMS certification is granted by the College of Financial Planning, the college that created the Certified Financial Planner certification.

To achieve certification, you’ll need to enroll at the College of Financial Planning. This process is not similar to traditionally enrolling in a college. You select the program from the college’s website, choose your options, and pay for the materials. You’re given an opportunity to choose printed study materials when you’re checking out.

Once you receive your materials, you have 120 days from the day you’re granted access to the online material to complete testing and pass the final exam. You follow the course online—using prerecorded videos, self-study, and printed study materials if you buy them.

The final exam for the AAMS program contains 80 questions. A passing score on the AAMS final examination is 70% or better. The time limit for the final exam is three hours, and you’re allowed two attempts to pass.

The self-study program covers several topics:

• The asset management process
• Investment strategies
• Policy and change
• Risk, return, and investment performance
• Asset allocation and selection
• Taxation of investment products
• Investment opportunities for individual retirement
• Investment considerations for small business owners
• Executive compensation and benefit plans
• Insurance products for investment clients
• Estate planning
• Regulatory and ethical issues.

Once you receive your AAMS certification, you must complete 16 hours of continuing education credits per year and pay a renewal fee of $95 once every two years to maintain your certification.

AAMS vs. CFP

AAMS certification focuses on personal finance, asset management, and investments. It is intended for newer financial planners or planners transitioning from other financial work.

Certified Financial Planners (CFP) are finance professionals certified by the College of Financial Planning to help people plan and achieve their financial goals. A CFP can assist someone throughout their lifetime, helping them adjust their finances to meet changing life events and updated financial goals.

The CFP certification is the highest accreditation available for financial planners, requiring 6,000 hours of professional planning experience within the ten years preceding the certification exam.

Special Considerations

The Financial Industry Regulatory Authority (FINRA) specifies that it does not approve or endorse any professional credential or designation. Still, it does list the AAMS as one of the available designations in the financial services industry. According to the College for Financial Planning (CFP), some organizations recognize the AAMS designation as representing 28 hours of continuing education credit.

The CFP maintains an accessible database of the names of all certificate holders and their status. When AAMS students pass their final exam, they receive credit for completing module FP511 from the CFP course.

The Bottom Line

An AAMS is a financial advisor certified by the College of Financial Planning to advise clients about personal finances, asset management, and investments. It is a challenging course of study for those unfamiliar with investing and assets, but it is also a stepping stone for achieving the highly coveted Certified Financial Planner designation.

What Is an Asset Management Company (AMC)?

An asset management company (AMC) is a firm that invests pooled funds from clients, putting the capital to work through different investments including stocks, bonds, real estate, master limited partnerships, and more. Along with high-net-worth individual (HNWI) portfolios, AMCs manage hedge funds and pension plans, and—to better serve smaller investors—create pooled structures such as mutual funds, index funds, or exchange-traded funds (ETFs), which they can manage in a single centralized portfolio.

AMCs are colloquially referred to as money managers or money management firms. Those that offer public mutual funds or ETFs are also known as investment companies or mutual fund companies. Such businesses include Vanguard Group, Fidelity Investments, T. Rowe Price, and many others.

AMCs are generally distinguished by their assets under management (AUM)—the amount of assets that they manage.

Understanding Asset Management Companies (AMCs)

Because they have a larger pool of resources than the individual investor could access on their own, AMCs provide investors with more diversification and investing options. Buying for so many clients allows AMCs to practice economies of scale, often getting a price discount on their purchases.

Pooling assets and paying out proportional returns also allows investors to avoid the minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger assortment of securities with a smaller amount of investment funds.

AMC Fees

In most cases, AMCs charge a fee that is calculated as a percentage of the client’s total AUM. This asset management fee is a defined annual percentage that is calculated and paid monthly. For example, if an AMC charges a 1% annual fee, it would charge $100,000 in annual fees to manage a portfolio worth $10 million. However, since portfolio values fluctuate on a daily and monthly basis, the management fee calculated and paid every month will fluctuate monthly as well.

Continuing with the above example, if the $10 million portfolio increases to $12 million in the next year, the AMC will stand to make an additional $20,000 in management fees. Conversely, if the $10 million portfolio declines to $8 million due to a market correction, the AMC’s fee would be reduced by $20,000. Thus, charging fees as a percentage of AUM serves to align the AMC’s interests with that of the client; if the AMC’s clients prosper, so does the AMC, but if the clients’ portfolios make losses, the AMC’s revenues will decline as well.

Most AMCs set a minimum annual fee such as $5,000 or $10,000 in order to focus on clients that have a portfolio size of at least $500,000 or $1 million. In addition, some specialized AMCs such as hedge funds may charge performance fees for generating returns above a set level or that beat a benchmark. The “two and twenty” fee model is standard in the hedge fund industry.

Buy Side

Typically, AMCs are considered buy-side firms. This status means they help their clients make investment decisions based on proprietary in-house research and data analytics, while also using security recommendations from sell-side firms.

Sell-side firms such as investment banks and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees or commissions.

Asset Management Companies (AMCs) vs. Brokerage Houses

Brokerage houses and AMCs overlap in many ways. Along with trading securities and doing analysis, many brokers advise and manage client portfolios, often through a special “private investment” or “wealth management” division or subsidiary. Many also offer proprietary mutual funds. Their brokers may also act as advisors to clients, discussing financial goals, recommending products, and assisting clients in other ways.

In general, though, brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide “suitable” services. Suitable essentially means that as long as they make their best effort to manage the funds wisely, and in line with their clients’ stated goals, they are not responsible if their clients lose money.

In contrast, most asset management firms are fiduciary firms, held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients, avoiding conflicts of interest at all times. If they fail to do so, they face criminal liability. They’re held to this higher standard in large part because money managers usually have discretionary trading powers over accounts. That is, they can buy, sell, and make investment decisions on their authority, without consulting the client first. In contrast, brokers must ask permission before executing trades.

AMCs usually execute their trades through a designated broker. That brokerage also acts as the designated custodian that holds or houses an investor’s account. AMCs also tend to have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions.

Example of an Asset Management Company (AMC)

As mentioned earlier, purveyors of popular mutual fund families are technically AMCs. Also, many high-profile banks and brokerages have asset management divisions, usually for HNWI or institutions.

There are also private AMCs that are not household names but are quite established in the investment field. One such example is RMB Capital, an independent investment and advisory firm with approximately $10 billion in AUM. Headquartered in Chicago, with 10 other offices around the U.S., and roughly 142 employees, RMB has different divisions, including:

1. RMB Wealth Management for wealthy retail investors
2. RMB Asset Management for institutional investors
3. RMB Retirement Solutions, which handles retirement plans for employers

The firm also has a subsidiary, RMB Funds, that manages six mutual funds.